The advance and final invoices are two documents that play a crucial role in business transactions. Although both relate to sales transactions, their purpose, application, and detailed information differ. This article will look at these differences and the uses of both types of invoices.
Advance invoice vs. final invoice - differences, application.
An advance invoice is a document a seller issues when he receives an advance payment for a future transaction. It is a form of payment confirmation that usually does not complete the transaction, but it is the first step in its implementation. On the other hand, a final invoice, also known as a sales invoice, is issued at the end of a transaction when the delivery of goods or services has already been completed, and the total amount to be paid is known.
The main differences between the two types of invoices are the timing of their issuance, the data they contain, and the function they perform in the sales process.
What is an advance invoice used for?
The advance invoice is designed to document the buyer’s advance payment. It is used in cases where the transaction is carried out in several stages or when the value of the service or goods is significant and requires an advance payment before delivery. With an advance invoice, the seller has formal confirmation of receipt of the advance payment, which facilitates subsequent settlement and provides assurance that the transaction is secured.
The advance invoice is also essential for the buyer, as it is a document on which he can claim a VAT refund if the seller fails to fulfill the contract.
Final invoice - the most critical information
The final invoice is a document that summarizes the entire transaction, including the goods or services supplied and the final amount to be paid. It contains all the necessary information, such as the details of the seller and buyer, a description of the goods or services, unit prices, VAT rates, and the due date.
The final invoice should be issued at the end of the transaction after the delivery of goods or services has been completed. It is a crucial document for both parties to the transaction, formalizing all obligations and confirming the performance of the contract.
Advance payment invoice and VAT
The advance invoice impacts VAT settlement. When an advance invoice is issued, the seller is obliged to pay VAT on the value of the advance. This means the seller should show this VAT in his tax return, even if the total transaction still needs to be completed.
On the other hand, in the case of a final invoice, VAT is settled on the total value of the transaction, considering the previously reported VAT from the advance invoice. In practice, if the buyer has made an advance payment, the VAT from this advance payment should be deducted from the VAT shown on the final invoice.
What are the differences between the advance payment invoice and the final invoice?
The main differences between an advance invoice and a final invoice include:
- purpose: an advance invoice documents an advance payment made by the buyer, while a final invoice summarizes the entire transaction.
- the time of issuance: The advance invoice is issued before the transaction is completed, while the final invoice is issued after the transaction is completed.
- the information in the document: the advance invoice contains information on the advance payment, while the final invoice includes complete details on the goods or services delivered and the final amount to be paid.
When to issue a final invoice?
The final invoice should be issued after the completion of the transaction, that is, after the delivery of goods or the performance of services. The final invoice must contain all relevant information, such as:
- date of issuance of the invoice
- invoice number
- data of the seller and the buyer
- description of the goods or services delivered
- the final amount to be paid, including the VAT value
If the transaction was completed in several stages, the final invoice should consider any advance payments previously made by the buyer.
In summary, the advance and final invoices are vital in the business process. Understanding and correctly issuing them is essential for any organization to manage its finances and effectively meet its tax obligations.
